Board diversity — the representation of women, racial and ethnic minorities, LGBTQ+ individuals, and other underrepresented groups in the boardroom — has become one of the most visible and contested dimensions of corporate governance in the United States. Over the past decade, institutional investors, proxy advisory firms, stock exchange listing standards, state legislatures, and shareholder activists have collectively pushed public companies to dramatically expand the diversity of their boards. These efforts have produced measurable change: the composition of public company boards has diversified substantially since 2016, particularly with respect to gender diversity. They have also produced a significant legal backlash, with federal and state courts striking down mandatory diversity quotas and raising constitutional and statutory challenges to exchange diversity requirements.

The result is a legal landscape that is genuinely complex and rapidly evolving. Directors and governance professionals must understand the current state of the law — what requirements remain enforceable, what disclosure obligations exist, and what legal risks attach to both mandatory diversity programs and to their absence — in order to navigate this area of governance with accuracy. This article surveys the principal legal frameworks governing board diversity, examines the judicial decisions that have shaped the current landscape, and offers practical guidance for companies seeking to develop defensible and effective board diversity practices.

California’s Mandatory Diversity Statutes

California was the first US state to enact legislation mandating minimum representation of specific groups on corporate boards. Senate Bill 826, enacted in 2018, required public companies with principal executive offices in California to have a minimum number of women on their boards of directors: at least one woman for boards with up to four directors, at least two women for boards with five directors, and at least three women for boards of six or more. Assembly Bill 979, enacted in 2020, extended mandatory diversity requirements to include directors from ‘underrepresented communities,’ defined as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, gay, lesbian, bisexual, or transgender individuals.

Both statutes were challenged in California state court as unconstitutional under the California Constitution’s equal protection clause, which prohibits discrimination on the basis of race, sex, color, ethnicity, and national origin. In April 2022, the Los Angeles Superior Court struck down AB 979 as unconstitutional, finding that the statute’s racial and ethnicity-based quotas could not survive strict scrutiny. In May 2022, the same court struck down SB 826 as unconstitutional, finding that the statute’s sex-based board composition requirements also violated the California Constitution’s equal protection provisions. The state of California appealed both decisions, but as of the time of this writing, neither statute is currently being enforced, and California’s mandatory board diversity experiment has been effectively halted by judicial action.

The California experience illustrates the fundamental constitutional tension in mandatory board diversity legislation: compelling private corporations to seat directors based on their membership in specified demographic groups implicates equal protection principles that require heightened judicial scrutiny. The same constitutional framework that prohibits discrimination against protected classes also constrains the government’s ability to mandate the preferential selection of members of those classes in private corporate governance. Legislatures seeking to increase board diversity through mandatory representation requirements face this constitutional constraint as a fundamental limit on the regulatory tools available to them.

Nasdaq’s Board Diversity Rule

Nasdaq’s board diversity listing rule, approved by the SEC in August 2021 under Nasdaq Listing Rule 5605(f), takes a different approach from California’s mandatory quotas. Rather than mandating specific board composition, Nasdaq’s rule requires listed companies to have, or explain why they do not have, at least two diverse directors — defined as one director who self-identifies as female and one director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or LGBTQ+. Companies that do not meet the diversity objectives must explain in their proxy statement or on their website why they do not. Smaller reporting companies and foreign private issuers have modified requirements.

Nasdaq’s rule was immediately challenged by opponents who argued that it exceeded the SEC’s statutory authority under the Securities Exchange Act, constituted an unconstitutional delegation of legislative power, and violated the equal protection principles embodied in the Due Process Clause of the Fifth Amendment. In December 2024, the Fifth Circuit Court of Appeals, sitting en banc, vacated the SEC’s approval of Nasdaq’s diversity rule, holding that the SEC exceeded its statutory authority under the Exchange Act by approving a rule governing the internal composition of corporate boards. The Fifth Circuit’s decision was based primarily on statutory authority grounds rather than constitutional grounds, but its effect was to nullify the Nasdaq diversity listing rule as an enforceable federal regulatory requirement.

Following the Fifth Circuit’s decision, Nasdaq announced that it would not enforce the diversity disclosure requirement, and the SEC — under the Trump administration — indicated that it would not appeal the ruling or take other regulatory action to revive the board diversity rule. The practical effect for listed companies is that the mandatory Nasdaq diversity disclosure requirement is no longer enforceable. Companies are no longer required to disclose their board diversity statistics in the specific format required by the Nasdaq rule, and they face no Nasdaq delisting risk for failure to have diverse directors or to explain why they do not.

The Impact of Students for Fair Admissions

The Supreme Court’s June 2023 decision in Students for Fair Admissions v. Harvard and University of North Carolina, which struck down race-conscious admissions programs at Harvard and the University of North Carolina as violating the Equal Protection Clause of the Fourteenth Amendment and Title VI, has had significant ripple effects on corporate diversity programs generally, including board diversity initiatives. While the Supreme Court’s decision was limited in its express holdings to public and private university admissions programs, the decision’s reasoning — that using race as a criterion in selecting among individuals violates the Constitution’s guarantee of equal protection — has been invoked in challenges to corporate diversity and inclusion programs in other contexts.

Following the Students for Fair Admissions decision, several advocacy organizations filed complaints and lawsuits challenging corporate diversity programs in employment, supplier diversity, and board composition contexts, invoking both the constitutional framework of the decision and federal statutes prohibiting discrimination in employment (Title VII) and contracting (Section 1981). The legal landscape for race-conscious corporate diversity programs became significantly more uncertain following the decision, and many companies revised or moderated their diversity programs in response. For board diversity specifically, the practical implication is that companies should be cautious about explicit race- or ethnicity-based board composition goals that could be characterized as quotas or as requiring that individuals be selected based on their membership in a protected class.

Delaware Fiduciary Considerations

Delaware corporate law does not mandate board diversity, but it is relevant to board diversity in two respects. First, the board’s nominating and governance process — including the criteria applied in identifying and evaluating director candidates — is a governance decision that is subject to the business judgment rule. A board that adopts thoughtful diversity criteria as part of its director nomination process, considers diversity among the multiple factors relevant to board composition, and documents its process carefully is exercising legitimate governance judgment that courts will respect. A board that applies a rigid race- or gender-based quota in place of a genuine multi-factor evaluation process may face a different analysis.

Second, the independence analysis in derivative litigation and related-party transaction challenges can be affected by board composition. Courts examining whether a majority of the board is genuinely independent of a controlling party or a self-interested transaction sometimes note that a board dominated by insiders, long-tenured directors, or directors with close personal connections to management lacks the diversity of perspective and experience associated with true independence. Boards that are more diverse in background, expertise, and perspective are generally better positioned to demonstrate genuine independence in the governance contexts where independence is legally significant.

Institutional Investor and Proxy Advisor Expectations

Although the mandatory diversity requirements have been substantially curtailed by judicial action, institutional investor expectations regarding board diversity remain a significant practical force in US corporate governance. The largest US institutional investors — BlackRock, Vanguard, State Street, and others — have developed their own stewardship policies that express preferences for diverse board composition, and their voting behavior at annual meetings reflects those preferences. ISS’s proxy voting guidelines have incorporated board gender diversity into their director election vote recommendation criteria, recommending withhold votes against nominating committee chairs at companies with no female directors. Glass Lewis has adopted similar policies.

These investor preferences have real consequences for companies whose boards are insufficiently diverse: withhold vote recommendations from ISS and Glass Lewis, voting campaigns by activist investors focused on board composition, and the reputational implications of being identified as a governance laggard on diversity metrics. While the legal requirements for board diversity have been substantially weakened, the market-based pressures for diversity have not disappeared entirely — they have simply shifted from regulatory compulsion to investor preference and market accountability.

Practical Governance Guidance

For companies navigating the current board diversity landscape, several practical principles are worth emphasizing. First, focus on board composition as a genuine governance matter, not just a compliance exercise. The business case for board diversity — access to a wider range of perspectives, better decision-making, stronger connections to diverse customer bases and workforce — is independent of regulatory requirements, and companies that approach diversity as a genuine governance priority rather than a checkbox exercise are likely to make better decisions about it. Second, adopt director qualification criteria that consider diversity of background, expertise, experience, and perspective as legitimate factors among multiple criteria, without establishing rigid demographic quotas that could create legal exposure.

Third, conduct the director nomination process in a manner that is documented, deliberate, and defensible. The nominating committee’s consideration of the full qualified candidate pool, its articulation of the specific qualities sought, and its evaluation of each candidate against those criteria should be reflected in committee minutes and in the governance and nominating committee charter. Fourth, review the company’s diversity disclosures carefully. Although the Nasdaq diversity disclosure rule has been invalidated, many companies continue to voluntarily disclose board diversity statistics in their proxy statements and on their websites, and those disclosures must be accurate and consistent with the company’s actual practices. Fifth, monitor the evolving legal and regulatory landscape — including potential new state legislation, SEC regulatory developments, and judicial decisions in pending cases — and adjust the company’s governance practices accordingly as the law continues to develop.

Board diversity is ultimately a governance matter that reflects and shapes the kind of institution a corporation aspires to be. The legal framework surrounding it — mandatory quotas struck down, exchange rules vacated, constitutional constraints clarified, investor expectations persistent — provides the boundaries within which companies must operate. Within those boundaries, boards retain significant latitude to make genuine, thoughtful, well-documented choices about how diversity of background, perspective, and experience informs their approach to board composition. The companies that will navigate this area most successfully are those that treat board diversity as what it fundamentally is: a governance question that deserves the same rigorous, principled, and well-documented analysis as any other important board decision.

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